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Investing.com -- ING has published a market guide to the UK Autumn Budget, examining four scenarios and their potential impact on gilts and the pound, with its baseline scenario expecting Chancellor Rachel Reeves to implement tax increases while avoiding more inflationary measures.
Markets have already begun pricing this in through dovish Bank of England repricing, lower gilt yields, and a weaker pound.
ING’s post-budget target for EUR/GBP is 0.880.
A key risk factor for UK financial markets emerged recently when Reeves admitted failing to obtain a required license to rent her home, leading to opposition calls for her resignation.
The situation eased Thursday when Prime Minister Starmer expressed full support for Reeves, and a real estate agency accepted responsibility for the error.
Markets remain sensitive to potential leadership changes at the Treasury. When Reeves appeared close to leaving her position in July, gilt yields increased sharply. Investors worry that a new Chancellor might implement less stringent fiscal rules and increase borrowing at a time when gilt issuance remains high.
ING analysts believe that a surprise resignation by Reeves, though unlikely, would trigger significant volatility in both gilts and the pound.